Using Appendix 3 and other information, consider PF's financial position in 2025 and forecast financial position in 2026. Do you think Philip's sister should invest in PF? Justify your answer using suitable calculations. 2025: . . . . . . . 2026 (forecast): . . . . . . . Recommendation: . . . . . . .

Business

IGCSE&ALevel

CAIE

Exam No：0450_s25_qp_21 Year：2025 Question No：4(b)

Answer:

Justification might include:
- Philip's sister should invest in PF as the noncurrent assets are forecast to increase by nearly double and the building of the new factory is predicted to be financed mainly by a bank loan. The bank will be confident of a successful expansion of PF, or it will not grant such a big loan. This should help reassure Philip's sister that the investment will provide good returns in the future.
- Philip's sister should not invest in PF as the forecast statement of financial position suggests that there may be significant liquidity problems producing shoes in the future with an expected fall in the current ratio of 0.05 and an expected fall in the acid test ratio of 0.4 .

Knowledge points:

5.3.1.1. How a profit is made

5.3.1.2. Importance of profit to private sector businesses, e.g. reward for risk-taking/enterprise, source of finance

5.3.1.3. Difference between profit and cash

5.3.2.1. Main features of an income statement, e.g. revenue, cost of sales, gross profit, profit and retained profit

5.3.2.2. Use simple income statements in decision- making based on profit calculations (constructing income statements will not be assessed)

Answer:

Knowledge points:

Solution:

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